Dependent Care FSA makes me ineligible for dependent care credit? Box 10 of W2?

[sarawgodwin]

thank you

[jondavis847]

So then doesn't that mean that an FSA hurts households with 2 dependents?

I paid $15k for dependent care for 2 children in 2022. I had $5000 pre-tax in a DC FSA. So $6000-$5000 = $1000 *35% = 350$.

$5000 * ~25% = $1250 tax break + 350$ = $1600  maximum tax relief?

However with no FSA, $6000 * %35 = $2100 maximum tax relief?

Not too mention the loss of contributions throughout the year. Am I missing something here? Or am I cancelling my 2023 FSA contributions?

[DMarkM1]

Yes, what you are missing is without the FSA your taxable income is higher by 5000 so your tax is +1250 in your example. Your max Dependent Care Credit (DCC) $2100 minus $1250 tax increase nets $850 vice the $1600 savings with the FSA and DCC.  

[Erickson 19]

I'm not understanding your response, Mark. Wouldn't he have netted $500 more by not contributing to an FSA? Yes, he would have paid taxes on the $5,000 he contributed to the FSA, but he would have earned a credit at a higher rate on the $5,000 from the DCC.

I'm in a similar situation and wondering why I'm even contributing to an DC FSA now. I have 2 dependents and paid $17k in child care expenses in 2023. I contributed $5,000 to an FSA, and with my tax bracket at 12%, it resulted in savings of $600. I'll get an additional credit of $200 for the DCC (($6,000-$5,000)*20%) for a total tax reduction of $800. If I had not contributed to an FSA, I would be eligible for the full $6,000*20% for $1,200. Did I lose out on $400?

[DaveF1006]

Yes. In this scenario, your tax credit is $400  by contributing to the FSA. 

@Erickson 19 

[Jamzim0698]

Is this the same answer to this question for the 2023 tax year?? I have one child and 15k in childcare spent but did contribute 5k to a dependent care FSA myself throughout the year. Does that make me ineligible to use any of the additional money spent towards a Dependent Care Credit?

[MayaD]

Yes. You are not eligible to claim the credit if you have one child and you contributed 5k to a dependent care FSA. 

You are getting the tax benefit by excluding $5000 from your taxable income.

For more information check: irs.gov